News & Views

Budget 2016 HMRC: New powers to target online VAT fraud

As part of HMRC’s crackdown on online VAT fraud, they will now have powers directly to target offshore vendors and providers of 'market-places' or 'platforms'. Essentially these parties could become liable for any VAT loss arising from non-compliance by the users of their platform.

These measures will permit HMRC to:

a) “direct an overseas business to appoint a VAT representative with joint and several liability [for any VAT due]”; and

b) “hold an online marketplace jointly and severally liable for the unpaid VAT of an overseas business that sells goods in the UK via that online marketplace”.

The appointment of a local VAT representative will give HMRC a more pursuable target for any VAT loss. Any such representative will ordinarily require financial guarantees from the vendors they represent and indeed HMRC could likewise look to impose financial guarantees for the VAT owed from these representatives.

The measure focusing on marketplace providers also effectively delegates policing of this difficult area to these internet gate-keepers who are invariably larger organisations who will now be less tolerant of rouge traders.

It is important to note that these powers will be applied by HMRC as needed, rather than as a blanket approach. Not all internet sales will be affected; these measures are intended to target overseas businesses selling goods that are located in the UK at the time of sale to UK customers. Vendors with UK stocks could be affected. Vendors selling goods that are imported & cleared by the customer, who pays the import VAT (“policed” by the Post Office / courier providers), should remain unaffected but it is well to review the detail of any transaction chain model applied.

Overall, this is a sensible approach from HMRC but will put pressure on digital vendors to pay more attention to VAT rules in the UK and inevitably prompt such marketplace providers to tighten up their contractual terms with online vendors. The former will be keen to ensure that any terms & conditions provide the marketplace providers with recourse against rogue vendors should HMRC come knocking for lost VAT.

These measures will have effect from Royal Assent to Finance Bill 2016.

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